Turbulence Ahead, As European Court Demands Climate Fee From U.S. Transatlantic Flights

The European Union's highest court upheld on Wednesday, Dec. 21, 2011 the EU's right to impose its cap-and-trade carbon trading scheme on international airlines that use European airports, rejecting a suit brought by North American airlines. (AP Photo/Markus Schreiber, File)

(CNSNews.com) – Expect to pay more in the future to fly to London or Paris.

Europe’s highest court ruled Wednesday that U.S. airlines must comply with a European Union carbon emission trading scheme, triggering protests from the Obama administration, the aviation industry and free market groups – and raising fears of a costly trade war in coming year.

The decision by the Luxembourg-based European Court of Justice (ECJ) means that starting on January 1, all carriers flying to, from or within the E.U. will be liable for charges for emitting greenhouse gases blamed for “global warming.”

The E.U. has estimated that the cost to airline passengers for longer trips, such as transatlantic flights, will amount to between eight and 40 euros ($10.40 -$52.20), depending on the market price for emission allowances.

Under an E.U. directive that comes into effect in just 10 days, airlines using European airports will be allocated tradable allowances covering a certain amount of carbon dioxide (CO2) emitted each year, based on historical emissions data. CO2 emissions beyond the allowance must be paid for, and airlines can trade permits among themselves depending on how much carbon they produce.

Proponents say aviation accounts for three percent of total greenhouse gas emissions.

The industry group Airlines for America (A4A), which brought the legal action on its members’ behalf in 2009, argued that the European move violates international aviation treaties and infringes on national sovereignty.

A4A also contended that the E.U. directive would impose “an exorbitant tax that takes away from aviation the very funds it needs to continue to invest in aircraft technology, sustainable alternative fuels and infrastructure advances to build on its strong record of fuel efficiency improvements and emissions savings.”

But the ECJ disputed that extending the emissions trading scheme (ETS) to aviation amounted to a tax.

Applying the ETS to U.S. aircraft infringed neither customary international law nor aviation treaties, it said, since the airlines have a choice whether or not they wish to use European airports.

“It is only if the operators of such aircraft choose to operate a commercial air route arriving at or departing from an airport situated in the E.U. that they are subject to the emissions trading scheme.”

Apart from the U.S., more than 30 other countries, including Canada, China, India, Russia and Japan, have publicly opposed the directive.

Last week, Secretary of State Hillary Clinton wrote to the E.U. warning that if it was not willing to suspend the directive and “re-engage with the rest of the world to find a way forward,” the U.S. would respond with unspecified “appropriate action.”

State Department spokeswoman Victoria Nuland said Wednesday the administration was disappointed at the court ruling and believed, as it has consistently said, that the question of greenhouse gas emissions should be dealt with by the United Nations’ aviation body, the International Civil Aviation Organization.

‘Unilateral, counterproductive’

Airlines are expected to face huge costs in the coming years. A 2007 study commissioned by the aviation industry found that airlines would not simply be able to pass additional costs along to consumers, but would have to absorb a large proportion themselves. It estimated that complying with the ETS would cost carriers more than 45 billion euros ($60 billion) between 2011 and 2022.

Responding to Wednesday’s ruling, A4A said its members “will comply under protest and will continue to operate safely and efficiently to Europe when the scheme takes effect Jan. 1.”

But the industry group is also reviewing its options to pursue the matter in the High Court of England and Wales – where it originally took the case.

“Today's court decision further isolates the E.U. from the rest of the world and will keep in place a unilateral scheme that is counterproductive to concerted global action on aviation and climate change,” A4A said.

The International Air Transport Association (IATA), which represents some 230 airlines accounting for 93 percent of scheduled international air traffic, was also party to the A4A-led legal challenge.

“Unilateral, extra-territorial and market distorting initiatives such as the E.U. ETS are not the way forward,” IATA director-general Tony Tyler said Wednesday. “What is needed is a global approach agreed through the International Civil Aviation Organization.”

Retaliation foreseen

Last October the U.S. House of Representatives passed by voice vote a measure introduced by Rep. John Mica (R-Fla.), prohibiting U.S. carriers from participating in any ETS unilaterally set up by the E.U.

“The European Union’s extraterritorial action is inconsistent with long-established international law and practice … and directly infringes on the sovereignty of the United States,” it states.

The bill, along with a similar measure introduced in the Senate by Sen. John Thune (R-S.D.) in July, is before the Senate Commerce, Science, and Transportation Committee.

The ratings agency Fitch warned the ECJ decision could lead to a damaging trade dispute.

“We believe threats of trade retaliation over the E.U.’s cap and trade system will pose growing threats to aviation market access in both developed and emerging markets next year,” it said in a statement.

“Retaliation may be largely rhetorical in the early stages, but an absence of progress next year may trigger protectionist responses, especially from emerging market governments.”

The Competitive Enterprise Institute has also predicted trade retaliation.

“So, the Court is its arrogance is willing to open the gates of protectionism, tax the world’s airlines, and further weaken the airline industry – and ultimately harm the fragile world economy,” CEI adjunct fellow Fran Smith wrote on the free-market think tank’s blog.

But a coalition of six U.S. and European environmental groups which were permitted to intervene in the legal case hailed the decision, saying it “makes clear Europe’s innovative law to reduce emissions from international flights is fully consistent with international law.”

Earlier one of the six, the Environmental Defense Fund, expressed disappointment at the administration’s stance.

“The U.S. should be playing a constructive role in the global effort to reduce emissions and avoid dangerous climate change,” it said.